Interest Rates Cut Again

IN three short months the Reserve Bank of Australia has cut interest rates by two percentage points from the 7.25 per cent in place in September to the new rate of 5.25 per cent that takes effect today.

A lot has happened since the Reserve Bank cut rates by 0.25 percentage points in September to deal with an economy being buffeted by "opposing forces". Global credit markets were "difficult", it said at the time, but Australia's terms of trade were on the rise and business spending was strong.

Five weeks later, on October 7, the bank cut the cash rate by a headline-grabbing full percentage point, saying that international financial markets had taken a significant turn for the worse.

This "unusually large" cut was "appropriate in order to bring about a significant reduction in costs to borrowers" but the bank did not regard it as "establishing a pattern for future decisions".

Just four weeks later the Reserve Bank has all but repeated its October medicine, surprising the market with a cut of 0.75 percentage points.

A month ago Reserve Bank governor Glenn Stevens said that even with the international uncertainty, the overall path of economic activity in Australia had been close to what the board had expected. Yesterday, however, Mr Stevens had a subtly different message when he said the board's expectations had been met "until recently". In other words, the turbulent financial markets, falling commodity prices and deteriorating international conditions that he referred to yesterday had been worse than the Reserve Bank was expecting.

This can hardly be good news but Prime Minister Kevin Rudd is correct when he says that Australia is well-placed to make it through this worrying period of turmoil. Not only are our financial institutions apparently free from the worst of the lending practices that have played a major role in the credit crisis, our higher-than-average interest rates once seen as a negative are now a blessing, giving Australia more wiggle room than many nations.

In the short term this latest rate cut, together with the Federal Government's Christmas bonuses, should help ease the burden on battling Australians. The immediate spending encouraged as a consequence will help stimulate business activity and keep the wheels of commerce turning. The stronger we can keep our domestic economy, the better our chances of navigating this most international of economic storms.

Cups king Bart

HIS first Melbourne Cup winner was Light Fingers in 1965. He won with Galilee in 1966 and Red Handed in 1967. Think Big won in 1974 and 1975, Gold and Black in 1977 and Hyperno in 1979. He had Kingston Rule in 1990, Let's Elope in 1991, Saintly in 1996 and Rogan Josh in 1999. Now, a fortnight short of his 81st birthday, Bart Cummings has spun his magic for a 12th time, training the unfancied Viewed to the closest of victories in yesterday's big race. A hero to countless Australian punters over the decades, Bart Cummings truly is the Cups King.